Canada’s Variable-Rate Mortgage War Heats Up

Joel Ross

Canada’s Variable-Rate Mortgage War Heats Up. HSBC says it is discounting its variable mortgage rate starting Thursday to a level that undercuts the recently discounted rates of other major banks, as competition in the space intensifies.

The bank says it will offer a five-year variable closed rate of 2.39 per cent, down from 2.49 per cent and 1.06 percentage points below its prime rate. It says there’s no end date but that the rate could change at any time.

HSBC’s lowered rate comes after TD Bank and Bank of Montreal started offering five-year variable closed rates of 2.45 per cent in recent days at a heavy discount to their prime rate until the end of May.

Scotiabank says it has also started lowering its rate to match the limited-time offer of its competitors. The move on variable rate mortgages comes as rates for more popular fixed-rate mortgages are on the rise. Many of the same lenders who have cut their variable-rate mortgages have also hiked rates fixed-rate mortgages, and that has caused the Bank of Canada to increase its posted rate, to 5.34 per cent from 5.14 per cent prior.

The Bank of Canada rate is used to carry out the new “stress tests” on mortgages that the federal banking regulator, OSFI, has made mandatory. The rate hike makes that test a little bit harder; according to mortgage site Ratehub, it reduces buying power for mortgage borrowers by about 2 per cent. Canada is seeing slowing mortgage growth. The Canadian Real Estate Association said Tuesday that national home sales volume sank to the lowest level in more than five years in April, falling by 13.9 per cent from the same month last year. The national average sale price decreased by 11.3 per cent year-over-year.

Home sales have slowed due to various factors, including measures introduced by the Ontario and B.C. governments to cool the housing market, such as taxes on non-resident buyers. Other headwinds for mortgage growth include higher interest rates and the new stress test that makes it more difficult for would-be homebuyers to qualify with federally regulated lenders, such as the banks. The tighter lending rules are making it harder for homebuyers to qualify for uninsured mortgages and shrinking the pool of qualified buyers for higher-priced homes, CREA’s chief economist Gregory Klump said in April. Curious as how the new mortgage rules will affect your renewal or your new home purchase?

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